Clayton Earns Second Consecutive Clean Audit After Years of Financial Struggles

Clayton's City Council unanimously accepted a clean FY2025 audit — the second in a row after years of material weaknesses that had rattled the city's financial credibility. Council members used the moment to press auditors on inconsistent loan language and a nearly $200,000 drop in service revenues, signaling close fiscal oversight even in a good-news year.

• City receives unmodified audit opinion with zero findings, capping a turnaround from repeated material weaknesses during FY2021–2023

• Council flags inconsistent language on Stranahan Affordable Housing loan — auditors agree to revise the report paragraph

• $195,627 decline in service charges traced to wind-down of former redevelopment agency fund

• Free Level 3 EV charger expected to go live Friday with QR code access and one-hour daily sessions

A Clean Bill of Financial Health — With a Few Pointed Questions

Why it matters: From fiscal year 2021 through 2023, Clayton's audits repeatedly flagged material weaknesses — finance director turnover, unreconciled accounts, and missing documentation. A second consecutive year with no findings restores the city's standing for grants, borrowing, and the coveted Government Finance Officers Association Certificate of Achievement in financial reporting.

Where things stand: Chavan & Associates LLP, the city's independent auditor, presented the FY2025 Annual Comprehensive Financial Report and delivered an unmodified opinion — the highest grade available. The auditor reported no material weaknesses, no significant deficiencies, no material audit adjustments, and no disagreements with management.

City senior staff set the stage by walking the council through the troubled recent history. In FY2021, auditors found material weaknesses tied to continuity and succession planning in the finance director position. By FY2023, the problems had deepened:

"Auditing procedures also noted that cash balance for one of these agency funds was negative by $556,000 and was not reconciled," Kris Lofthus, City Manager, reported.

The auditor highlighted that Clayton's unrestricted net position is now positive — a distinction many local governments cannot claim — and that general revenues increased by $902,000. Pension liabilities have held steady for three years, and the city's Other Post-Employment Benefits liability stands at $456,000. The overall fund balance decreased by $247,000. The auditor expressed near-certainty that the report would earn the GFOA certificate.

Loan Language Draws Scrutiny

Vice Mayor Richard Enea zeroed in on a paragraph about the Stranahan Affordable Housing program on page 63 of the report, questioning whether the city was forgiving loans.

"I read there's one outstanding of $34,000 and we're not going to do anything about it. It says here there's one loan outstanding with interest and it says after is forgiven after 10 years after the term of the lease. I never read that before, that we're forgiving loans," Vice Mayor Enea said.

Dennis, a city staff member, clarified that the balance is simply the remainder of a long-term mortgage that has not yet reached its term.

Mayor Jeff Wan pushed further, identifying several inconsistencies in the report's language — the term length, the dollar figure, and whether the paragraph referred to one loan or multiple.

"It's 35 years, not 32. It's 34,000, not 32. And it talks about loans in the plural in the latter half and singular in the first half. And it does say that interest is forgiven," Wan noted.

The auditors agreed to review and potentially revise the paragraph before finalizing the document.

Service Revenue Decline and Diamond Terrace

Councilmember Kim Trupiano flagged a $195,627 decline in charges for services, asking staff to identify the cause. The auditor attributed the drop primarily to the wind-down of administrative fees the city had been recovering from the former Redevelopment Agency successor agency, Fund 615.

Trupiano also asked about the Diamond Terrace loan, confirming the $2.3 million balance is on track for repayment by 2030. Dennis noted that the amortization schedule includes large balloon-style final payments:

"The last two payments are quite large. Like a million or something. Over half a million dollars in each of those last couple of payments."

Councilmember Jim Diaz asked for clarification on the meaning of "significant passed-on adjustments," prompting the auditor to explain the technical audit terminology- these would be "immaterial" items, but likely significant amounts of cash. For example, if the city's petty cash amount was off, it would like be immaterial amounts, but an area of significance because of theft possibility. The 24-25 Clayton audit had no significant passed on adjustments.

Decisions: The council voted 5-0 to accept the FY2025 ACFIR (For: Diaz, Tillman, Trupiano, Enea, Wan; Against: none), with the understanding that the Stranahan paragraph would be clarified before the report is finalized.

What's next: Auditors will revise the Stranahan Affordable Housing loan language and submit for the GFOA Certificate of Achievement in financial reporting.

Minor Items

• Free EV charger nearing launch: The city's Level 3 charger in the downtown parking lot is expected to go live Friday. Residents will scan a QR code, download an app, and create a free account for one-hour charging sessions per 24-hour period. Charging will be disabled during designated no-parking hours.

• Library refresh moving forward: The city received the furniture list from Nolan Tam at the county library and must rebid carpet and paint contracts after prior bids expired. The project requires coordinating furniture delivery, carpet installation, painting, air conditioning work, and book storage.

• Grove Park restoration underway: A fenced-off area in the center of the park is being treated with soil amendment and rototilling before sod installation, replacing compacted dirt that failed to respond to past overseeding. Trees are also being trimmed to improve sunlight.

• Event sponsorship packages on sale: Sponsorship packages for all four city-sponsored events are available through March 31 at last year's pricing.